Fluid milk takes a beating, but organics see a few bright spots.

As usual, processors express enthusiasm about the future of the fluid milk category, but as usual, fluid sales show a marked lack of enthusiasm.

The entire fluid milk category saw $11.5 billion in dollar sales for the 52 weeks ending Aug. 9, according to Chicago-based Information Resources Inc. That’s a drop of 11.7% from the same period last year. Unit sales are down 1.2% to 4.3 billion.

Worst sales-wise among the subcategories is whole milk, down 13.4% in sales to $2.95 billion and 1.9% in units to 1.07 billion. That’s followed by skim/low fat, which saw $7.2 billion in sales (down 12.9%) and 2.7 billion units (down 1.4%). The milkshake category was down more than 6% to $55.6 million in sales and 9.8% fewer units (25.6 million).

The flavored milk/eggnog/buttermilk category saw mixed reviews, with sales down 3.6% to $734 million, but a 1.5% uptick in total units moved, to more than 358 million.

A weakened economy even managed to trip up organics, where nearly all the growth in the fluid milk sector has taken place over the past several years. Consumers looking to stretch their grocery dollars in large part pulled back from purchasing higher-priced organic products. However, what little fluid growth there was came in this arena.

Dean Foods’ Horizon Organic flavored milk, at sixth place in the top 10 brands, posted a whopping 33.8% jump in sales, to more than $12 million, versus a 3.6% drop for the overall subcategory, according to IRI data. This performance was atypical of the category; the next highest growth (and only four brands in the top 10 grew their dollar sales) was Hiland at 2.6%. At the other extreme, ninth-place Kemps’ sales fell nearly 46%.

Horizon Organic also saw its skim/low-fat sales rise, but by only seven-tenths of a percent, while this category’s sales of Stonyfield Farm went up about 4% while Organic Valley dropped nearly 12%. Overall category performance was down 13%.

Among whole milk brands in the top 10, No. 2 Horizon Organic (right behind private label) rose about 2%, while 10th-place Organic Valley dropped about 10%.

“The economy has slowed down the vigorous growth of organic dairy and shifted the fluid milk category growth from brands to private label,” says Eric Newman, vice president of sales for the La Farge, Wis.-based CROPP Cooperative, which markets the Organic Valley brand. “At the same time, the category is robust and within the core natural-food consumer, branded sales growth is in the 8 to 10% range on volume.” 

Although organic milk has been a growth-driving subsegment in milk, it only accounted for 4% of the total FDMx sales in 2008, according to an executive summary on the fluid segment by Chicago-based Mintel.

In addition, many private labels - such as Safeway (O Organics), Kroger and Target (Archer Farms) - have launched their own brands of organic milk, which are on average priced 20 to 25% cheaper than the national brands such as Horizon and Stonyfield Farm, Mintel reports, indicating that private-label organic milk sales may have also contributed to a slowdown in nationally branded organic milk.

Meanwhile, new products are entering the market that further build upon milk’s innate healthy profile. “Omega-3 fatty acid-enhanced milks are driving the branded fluid category with growth,” Newman says.

Among the newest entries is a milk range from Lafayette, Ind.-based Favored Dairy LLC that comes from cows fed a special vegetarian feed that results in milk naturally rich in omega-3 fatty acids and conjugated linoleic acid. Arizona’s Shamrock Farms offers Essentials for Kids, with DHA omega-3 and extra calcium. Other brands have followed suit with their own formulas containing omega-3s, and some with cholesterol-reducing plant sterols.

Beyond the milk itself, easier access plays a crucial role in shoring up the category. “Without a doubt, the most important factor driving the healthy and functional food market mainstream has been the increased accessibility of healthy products through additional channels,” says Marguerite Copel, vice president of corporate communications at Dallas-based Dean Foods Co. “With today’s grab-and-go lifestyle and rising gas prices, convenience stores have become a powerhouse for sales of some healthy products. Convenience stores have instituted new programs designed to increase sales of these types of products.”

In addition, Copel says many consumers are taking a simpler, more natural approach to the foods they eat. “They look for foods with only a few ingredients,” she says. “And they want foods as fresh and close to the farm as time and budget will allow.”

Few companies are as well-equipped to meet these demands as Dean Foods. “Our Fresh Dairy Direct business is the largest processor and distributor of milk and other dairy products in the country,” Copel says. “Our milk is primarily supplied by local dairy farms, and we work closely with them to make sure our milk is the purest and healthiest milk possible. We have an extensive distribution network so consumers can purchase fresh and healthy milk wherever they may be.”

Among new products from Dean and its regional affiliates is Over the Moon, a low-fat and fat-free milk with a rich and creamy taste, Copel reports. Over the Moon is enriched with calcium and protein to increase the nutritional value of the milk, basically creating a skim milk that tastes more like 2% and a reduced-fat milk that tastes more like whole.

The product is aimed at folks looking to reduce their fat intake but would otherwise abandon milk completely rather than settle for lower-fat varieties.

As U.S. adults and children combat the widely prevalent obesity pandemic, high-fat and high-calorie beverages such as whole milk are sure to exhibit a decline through consumer attrition. FDMx volume sales of whole milk on average declined a little more than 5% in each year during 2003-08. Similarly, the segment only grew 3% in dollar sales during 2003-08 due to a sharp decline in demand.

Furthermore, Mintel believes that the annual overall consumption of milk for each household that uses milk declined by three gallons in 2008, compared to 2006. This could be attributed to a number of factors including increased competition from other dairy products and other non-alcoholic beverages that offer functional and exciting experiential benefits.

Yogurt drinks have taken away some milk consumers, according to Mintel, which reports that 78% of consumers it surveyed who report drinking yogurt drinks tend to sometimes drink yogurt drinks instead of milk. In addition, Mintel found that around 16% of all consumers are likely to drink soymilk as a substitute for cow’s milk. Health-promoting innovations incorporating probiotics, vitamins, omega-3 and fiber have also contributed to the healthy growth in soymilk over the past five years.

Due to the concerns over obesity, more consumers are likely to move from whole milk to skim/low-fat milk during 2009-14, the majority of these converts likely to be Hispanics and blacks, Mintel speculates. Therefore, innovations promoting creamy taste in low-fat/skim milk are likely to find growth from these demographics because they exhibit an above-average use of whole milk, Mintel says.

Educating consumers

Personal consumption of milk continues to lag behind that of carbonated drinks, Mintel reports, asserting that milk has not been able to position itself as an aspirational beverage that provides an exciting experience through innovative flavors or a rush of energy like carbonated drinks or energy drinks.

As such, the dairy industry must continue to improve its ongoing efforts to educate retailers and consumers on the value of milk in its various forms.

“There are many opportunities for innovation to meet the consumer demands for natural and better-for-you products,” Dean’s Copel says. “Our biggest challenge is continuing to innovate to meet the needs of moms and families. As we provide more innovative options in the dairy aisle, we also have to provide our customers with the insights and solutions to manage these options and the category as a whole.”

Educating consumers continues to be a challenge for the organic sector as well, in order to highlight the differences in quality between conventionally grown and organic foods to justify the value,” Newman says. “We offer a considerable amount of educational opportunities for our retailers, from farm tours to in-store training and farmer interaction with their staff and customers.”

Mintel reports that growth hormones in milk are likely to be a cause of concern among 50% of all adults; women are more likely than men to care about the artificial hormone (56% to 44%). Growth opportunities exist through increasing milk from cows not treated with rBST in the product mix, as 58% of all respondents agree that non-organic hormone-free milk is as healthy as organic milk.

That’s something with which organic marketers might take issue, as they strive to educate consumers on the differences between “natural” and “organic” in the marketplace. “Organic Valley continues to educate and encourage consumers to look for certified-organic products that are third-party verified and regulated by one of the strictest agricultural standards in the world,” Newman says. “The USDA organic seal is the only way that a consumer can know for certain that a product is produced without antibiotics, synthetic hormones and pesticides.”

Elsewhere on the green spectrum, packaging with a low carbon footprint is likely to create a favorable impression among consumers. Mintel reports some 63% of consumers surveyed say they would prefer to purchase milk in packaging that reduces environmental waste, compared to “regular” packaging. Of course, manufacturers of plastic, paperboard and glass milk packaging continue to argue their benefits to the environment.

Still, despite the beating that milk sales have been taking, fluid milk usage accounts for about 30% of the milk supply in the United States, and total value of the milk produced annually is around $25 billion, or more than 20% of the industry’s total sales, according to USDA and Census Bureau calculations.

It’s up to processors and marketers to come up with new and better ways to get milk back on more American dinner tables in place of other beverages, by demonstrating its robust nutritional value, even at higher prices. “Consumers are purchasing to meet their personal budget requirements,” Copel says, and statistics confirm that milk is far more subject to price elasticity than generally considered in the past.

And consumers are seeking out the best deals. “Coupon use and redemption are up dramatically,” Newman says. “We are using more online and IRC’s to drive specific product sales goals. … Renewed at-home meal preparation has created more demand for dairy as a meal ingredient. Our number-one request on our Web site is for recipes.”

In all, the outlook for fluid milk remains positive.

“We are seeing the global marketplace recover earlier and more rapidly than the domestic market, so our export sales are experiencing strong growth already,” Newman says. “The domestic market has already hit bottom in terms of branded sales growth, and we are now seeing a return to positive growth in August and September and moving into the fourth quarter.”  

Fast Facts

  • Private labels dominate the highly commoditized market; the top six processors only make up 26% of overall sales totaling more than $11.5 billion (IRI).

  • Although 96% of all households used some type of milk in 2008, only 68% of all respondents age 18+ report using milk personally at least four times a week.

  • Using technologies that prolong milk’s shelf life is likely to garner more sales as 47% of all respondents say that they would buy more milk if it lasted longer before spoiling.

  • 37% of consumers surveyed believe that soymilk is healthier than cow’s milk.

  • 29% of respondents prefer yogurt to milk because of the presence of live cultures.

  • 30% agree that it is worth paying more for organic milk.

  • 57% report that they can taste the difference between certain brands of milk.

  • Of parents who give their children milk: 76% let their children drink flavored milk; 70% agree milk is the healthiest drink choice;  54% say whole milk is too high in fat; 47% say their children prefer other beverages; 43% would consider buying shelf-stable single-serve milk as a snack option while 38% would do so to pack with lunchbox.

  • Of those who don’t drink milk: 38% say they don’t like it that much; 36% prefer other beverages; 19% tend to be lactose-intolerant; 20% don’t think about it as a beverage option; 11% find it inconvenient because it requires refrigeration.

    Source: Mintel

  • Links